Correlation Between China Pharma and Eagle Pharmaceuticals

Can any of the company-specific risk be diversified away by investing in both China Pharma and Eagle Pharmaceuticals at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining China Pharma and Eagle Pharmaceuticals into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China Pharma Holdings and Eagle Pharmaceuticals, you can compare the effects of market volatilities on China Pharma and Eagle Pharmaceuticals and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in China Pharma with a short position of Eagle Pharmaceuticals. Check out your portfolio center. Please also check ongoing floating volatility patterns of China Pharma and Eagle Pharmaceuticals.

Diversification Opportunities for China Pharma and Eagle Pharmaceuticals

-0.17

Correlation Coefficient

China Pharma  Eagle Pharmaceuticals

Good diversification

The 3 months correlation between China and Eagle is -0.17. Overlapping area represents the amount of risk that can be diversified away by holding China Pharma Holdings and Eagle Pharmaceuticals in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Eagle Pharmaceuticals and China Pharma is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on China Pharma Holdings are associated (or correlated) with Eagle Pharmaceuticals. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Eagle Pharmaceuticals has no effect on the direction of China Pharma i.e., China Pharma and Eagle Pharmaceuticals go up and down completely randomly.

Pair Corralation between China Pharma and Eagle Pharmaceuticals

Given the investment horizon of 90 days China Pharma Holdings is expected to under-perform the Eagle Pharmaceuticals. In addition to that, China Pharma is 1.26 times more volatile than Eagle Pharmaceuticals. It trades about -0.08 of its total potential returns per unit of risk. Eagle Pharmaceuticals is currently generating about -0.1 per unit of volatility. If you would invest  3,074  in Eagle Pharmaceuticals on August 31, 2024 and sell it today you would lose (2,875) from holding Eagle Pharmaceuticals or give up 93.53% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	91.82%
Values	Daily Returns

China Pharma Holdings  vs.  Eagle Pharmaceuticals

China Pharma Holdings

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in China Pharma Holdings are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. Despite fairly unsteady technical indicators, China Pharma demonstrated solid returns over the last few months and may actually be approaching a breakup point.

Eagle Pharmaceuticals

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Eagle Pharmaceuticals has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain fairly strong which may send shares a bit higher in December 2024. The current disturbance may also be a sign of long term up-swing for the company investors.

Pair Trading with China Pharma and Eagle Pharmaceuticals

The main advantage of trading using opposite China Pharma and Eagle Pharmaceuticals positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China Pharma position performs unexpectedly, Eagle Pharmaceuticals can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Eagle Pharmaceuticals will offset losses from the drop in Eagle Pharmaceuticals' long position.

The idea behind China Pharma Holdings and Eagle Pharmaceuticals pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Sync Your Broker module to sync your existing holdings, watchlists, positions or portfolios from thousands of online brokerage services, banks, investment account aggregators and robo-advisors..